The Relational Corporate Governance Approach
- Corporations, Globalisation and the Law series
Chapter 5: Key Field No 2: ‘Autopsies’ of the Enron and Hastie corporate collapses
The firm collapsed for the most mundane of reasons – its managers suffered the behavioral biases of successful entrepreneurs. They overemphasized the upside and lacked patience. They pursued heroic short term growth numbers that their business plan could not deliver. That pursuit of immediate shareholder value caused them to become risk prone, engaging in levered speculation, earnings manipulation, and concealment of critical information. They were rogues to be sure, but the self regulatory system nevertheless is deeply implicated in their company’s failure. Enron’s collapse reminds us that our corporate governance system takes some significant risks in the name of encouraging innovation and entrepreneurship and economizing on enforcement costs. William W Bratton on Enron’s demise.
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